The infrastructure sector is the backbone of the Indian economy. The government has been making efforts to boost the sector through various schemes and incentives. According to the government, total infrastructure spending is expected to be about 10% of GDP (gross domestic product) during the 12th Five-Year Plan (2012–17).

Impact of GST on infrastructure sector :-

Positive:-

• GST being a concurrent tax on supply of goods and services is expected to bring in predictability for infrastructure projects.
• Valuation of goods and services in works contracts would now be put to rest as works contracts would be regarded as supply of services.
• While there is apprehension that a flat GST rate of 18% would lead to increased incidence on infrastructure projects, availability of input tax credits would neutralize such concerns. Thus, contractors and suppliers could look forward to a simpler and efficient tax regime.
• Expected to boost the infrastructure sector with the elimination of ´tax on tax’ and the introduction of input tax credit (ITC).
• It will bring down the logistics costs
• It streamlines the tax system which can lead to increase in investments.

Negatives :-

• Cost:
  1. Credit restrictions on works contracts resulting in an immovable property coupled with increase in GST rates could increase cost outlay.
  2. Already, exemptions and concessions to infrastructure have been completely withdrawn. This could also lead to increased working capital requirements. Project cost could rise due to increased burden of indirect taxes.
• Power is an important component of infrastructure:-
  1. Electricity being outside the purview of GST, power generation companies would continue to have indirect taxes as a significant cost factor.
  2. Further, an increase in rate of services and withdrawal of exemptions and concessions for power projects is expected to have an impact on power companies.
• These provisions will increase the compliance costs for construction companies
  1. GST would require contractors to register in multiple states owing to the requirement of registering at the place of supply of service. Contractors would also have to compulsorily register in a state where it supplies services but has no fixed place of business, owing to the concept of “casual taxable person”. These provisions will increase the compliance costs for construction companies.
  2. Furthermore, companies will have to incur the costs of upgrading their IT systems, as input credit would be available only after an online reconciliation of tax invoices.
• With the advent of GST, there will also be a change in the cost of construction materials. For example, a higher GST rate of 28% imposed upon cement would adversely impact construction cost.

How to boost growth in infrastructure sector :-

• India and Japan have joined hands for infrastructure development in India’s north-eastern states and are also setting up an India-Japan Coordination Forum for Development of North East to undertake strategic infrastructure projects in the northeast. Such projects can give impetus to the infrastructure sector.
• India needs to develop a better regulatory mechanism, a rational pricing system, reform financial markets and strengthen dispute resolution mechanisms so that the private sector finds infrastructure projects economically feasible.
• The Kelkar Committee had noted that inefficient and inequitable allocation of risk can be a major factor leading to failure of PPPs. PPP contracts should ensure optimal risk allocation across all stakeholders. 
• There is a need for independent regulatory body in roads as the current arrangement at the centre and the states results in a potential conflict since the rule making body s also the implementing body
• Key Recommendations: Sam Pitroda Panel on Railway Modernization
  1. Signalling is archaic so there is need to stress on Complete upgradation of railway’s communication system
  2. A centralized train monitoring system right from rail bhawan.
  3. Explore PPP
• Ports:-
  1. India needs to revamp institutional and regulatory environment around ports.
  2. Corporatisation of ports is one way of achieving efficient and world class ports by the conversion of major port trusts into truly commercial organisations.
  3. In terms ofinfrastructure, it is important to maintain draft to serve bigger vessels, ensure mechanisation of ports through introduction of new equipment and procedures, build new facilities, upgrade existing facilities and automate systems/procedures.